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Kashkari Says Fed Watching U.S.-China Spat as Markets Shudder

(Bloomberg) -- Federal Reserve Bank of Minneapolis President Neel Kashkari said he’s “sympathetic” to the need to press China to engage in fair trade, yet emphasized it’s too soon to assess the full impact of the U.S.-China trade spat on the economy.

China has been carrying out a one-sided trade policy for many years, Kashkari said Saturday in an interview with Neil Cavuto on Fox News Channel. “We should all be paying attention” to the tariff threats being exchanged, given the large range of possible outcomes, he said.

Kashkari spoke days after President Donald Trump instructed the U.S. Trade Representative’s Office to consider tariffs on an additional $100 billion in Chinese imports, bringing to $150 billion the range of Chinese goods under consideration. China, which already proposed duties on $50 billion in American goods including aircraft and soybeans after the first U.S. move, has said it will respond proportionately.

“This could be a lot of chest pounding” and not lead to a real impact on the economy, or “it could lead to a trade war,” Kashkari said. The end result may also be something in the middle, where it’s a lot of bluster but it scares businesses and investors, “and they pull back and that could impact the growth of the U.S. economy,” he said. “The impact on Main Street is going to be seen over the long term.”

Risks to Farmers

Some Fed officials have recently warned that while the brewing dispute is adding uncertainty to the otherwise solid U.S. economic outlook, it’s premature to assess the fallout. Fed Chairman Jerome Powell on Friday sought to steer clear of the subject, and his prepared comments in a speech in Chicago included no reference to China or financial markets, which have been rattled by concern that the threats could escalate into a U.S.-China trade war.

“We at the Federal Reserve are paying attention, but it’s too soon for any of us to judge,” Kashkari said. “None of us knows how to weigh the probability of these different outcomes.”

Agricultural prices have been low for some time in Kashkari’s Fed district, which includes Minnesota, the No. 3 U.S. soybean-growing state, as well as the Dakotas, Montana, and parts of Wisconsin and Michigan. To the extent that trade friction reduces prices further, it may lead to more consolidation of farm ownership and affect the banks that lend to those producers, he said.

Kashkari also said it’s difficult to estimate the effect on consumer prices. The tariffs could in the short run offer some relief locally, even though they’d also raise import prices, he said. “How that washes out in overall inflation I think is hard to judge,” Kashkari said. “That uncertainty I think is scaring people a little bit.”